February 3, 2007

Macro-economics B the Euro and the Dollar

The World and the United States:

Gross Domestic Product (GDP):

Probably 2002:

World: $32,000,000,000,000.

U.S.: $10,500,000,000,000 (pp. 8 and 119).

Oil Consumption:

2004:

World: 82,000,000 barrels a day.

U.S.: 20,000,000 barrels a day (pp. 47 and 83).

The United States:

Trade Deficit:

2003: $496,500,000,000.

2004: $665,900,000,000 (6 percent of GDP) (pp. 8, 37 and 119).

Cumulative trade deficit since 1990: $3,500,000,000,000 (p. 8).

Budget Deficit:

2003: $375,000,000,000.

2004: $413,000,000,000 (pp. 8 and 119).

Federal Debt:

2003:

Total: $7,600,000,000,000 (65 percent of the GDP).

Owned by Foreigners:

$3,000,000,000,000 (40 percent of the U.S.=s total debt, and more than 25 percent of its GDP). This purchase by foreigners is made possible by the dollar being the World Reserve Currency, and, therefore, amenable to being maintained in large part by petro-dollar recycling.

The principal purchasers of the U.S. debt are China and Japan which together hold $1,400,000,000,000 of the U.S. debt (47 percent of the 40 percent of the federal debt held by foreigners) (pp. xvii, 8, 36-37, 119, 201 and 204).

Consumer Debt:

2003: $2,000,000,000,000 (p. xvii).

Unemployment Rate:

June 2004: 9.6 percent (p. 10).

Ratio of Wages B CEO and Production Workers:

1988: 93.

1999: 419 (p. 10).

Military Expenditures:

2003:

U.S.:

$417,000,000,000.

This is the largest annual military expenditure of any country, exceeding the combined defense spending of the next 20 nations, and representing 47 percent of the world=s annual military expenditures. The figure excludes the annual expenditure of the intelligence network which totals at least $30,000,000,000.

European Union (12 states):

$120,000,000,000.

Russia:

$91,000,000,000.

This is second-largest annual military expenditure of any one country.

2002:

Iraq:

$1,400,000,000 (pp. 12-13, 27-28 and 119).

Military Bases:

2001: 725 in 120 countries (p. 13. Johnson p. 4).

Military Presence:

2003: 153 of the 189 member countries of the United Nations (81 percent) (p. 13. Johnson p. 288).

Recycling Petro-dollars:

1971: In order to prevent the imminent collapse of the country=s gold reserves, President Nixon abandons the dollar-gold link and lets the dollar float in relation to the other currencies. The dollar becomes the major reserve currency of most nations and takes its role as the official World Reserve Currency. Henceforth the U.S. has no restraint on printing new dollars (pp. 20, 22-23, 29, 33, 115, 118 and 149).

1973: The price of OPEC=s benchmark oil is $3.01 per barrel (p. 30).

1973-1974: The oil price shock. In 1974, the price of OPEC=s benchmark oil is $11.65 per barrel.

The high price of oil has two main repercussions:

1. Demand for the Dollar: The high price of oil suddenly creates an enormous demand for the (now floating) dollar (pp. 21 and 28-29).

2. Petro-dollar Recycling: The high price of oil floods OPEC members with amounts of dollars far in excess of their needs for domestic investment. Most of these Asurplus petrodollars@ are invested in London and New York banks (thus benefitting them), and these in turn make loans to developing countries, desperate to borrow dollars in order to finance their oil imports. In this process of monetary petro-dollar recycling, hundreds of billions of dollars would be recycled between OPEC, the London and New York banks, and developing countries (pp. 21-22).

1974: The Saudi government secretly uses it oil surplus funds to purchase $2,500,000,000 in U.S. Treasury Bills (pp. 21 and 30-31).

1975: The U.S. cuts a secret deal with Saudi Arabia to ensure that OPEC would continue to price oil in dollars only. Oil importing countries, such as Germany, Argentina and Japan, now need to acquire export-based dollars to pay for their expensive oil-imports. Given that oil is the essential natural resource for every industrialized nation, the demand and liquidity value of the dollar is solidified. In effect, the dollar becomes backed by oil (pp. 20, 30, 32-33 and 120).

1979: The second oil shock, with the same repercussions as the first (1973-1974) B a high demand for the dollar on the part of oil-importing countries other than the U.S., and the opportunity for the U.S. and U.K. banking and petroleum conglomerates to Amanage the recycling of petro-dollar flows.@

The dollar nevertheless loses value and, in an effort to stem the inflation, the U.S. Federal Reserve unilaterally increases interest rates. The developing world cannot pay its debts and a crisis develops (pp. 21-22).

1981: The developing countries cannot pay their debt and resent what they perceive as usurious U.S.interest rates on their petro-dollar loans. The International Monetary Fund (IMF) acts as a debt policeman, requiring the implementation of Aausterity programs@ (decreased spending for health, education and welfare), so that timely debt service can be given to the London and New York banks (p. 22).

The Dollar and Euro Currency War:

1999: The euro is introduced in Europe (pp. 26 and 28).

2000: Iraq is the first OPEC country to violate the petro-dollar oil price arrangement. Saddam Hussein announces that effective November 6^th, he will no longer accept dollars for oil being sold under the United Nations Oil for Food Program. All oil sales are to be paid in euros. The Iraqi oil proceeds held in the United Nations Oil for Food Program account, would henceforth be deposited in the leading French bank, BNP Paribas. The U.S. is afraid of a panic sell-off of dollars by foreign central banks and OPEC oil producers (pp. xvii, 31-32, 116, 136 and 223).

2001-March 2003: The euro appreciates steadily relative to the dollar.

Under the Oil for Food Program, the U.S. purchases 65 percent of Iraq=s total oil exports. (From 2001 to early 2003, this was 2,5000,000,000 barrels out of a total production of 3,3000,000,000 barrels). The U.S. petroleum conglomerates pay for this oil in euros, not dollars (pp. 117-118).

2002: From late in the year to 2005 (the latest figure in Clark=s book), the value of the euro is above that of the U.S. dollar and steadily appreciating in relation to it (pp. 139, 174 and 227).

2003: The traditional dollar standard for oil transactions is now challenged by the euro. The ultimate prize in the unspoken war between the dollar and euro for global supremacy, is the currency to be used by OPEC as the international standard for oil transactions.

On the part of the U.S., the Iraq War, initiated in March, was undertaken from a defensive posture, in an effort to preserve a faltering system of American economic hegemony. The War is the first overt conflict in the current petro-/euro-dollar warfare. It enables the U.S. military to secure physical control over the planet=s remaining hydrocarbon deposits, and, with the help of intelligence agencies, enforce the petro-dollar arrangement.

In May, the U.S., even while blocking the return of the United Nations inspectors to Iraq, so as to continue their assessment of the country=s status with regards to weapons of mass destruction, still successfully convinces the United Nations Security Council to lift the sanctions on Iraq. The Council grants the U.S. and the U.K. sole control of Iraq=s oil production revenue B which henceforth, of course, would be sold in dollars, despite the dollar=s recent fall in value (pp. 27, 42, 114, 120-122, 127 and 199).

2003-2004: Iran and Russia make statements indicating a momentum toward a petro-euro system (p. 39).

2004: The European Union expands by ten additional member states, thereby becoming a 25-nation economic block, the EU-25, which directly competes with the U.S. economy:

* EU-25:

Population 450,000,000. GDP $9,600,000,000,000

* U.S.:

Population 280,000,000. GDP $10,500,000,000,000 (pp. 120 and 139).

Conclusions:

1. Maintaining the dollar as the World Reserve Currency was a major reason for the push by the U.S. to invade Iraq. The U.S. was willing to sustain domestic and international economic backlash, hopefully of short duration, in order to stave off the long-term decline and crash of the dollar which would be initiated by a collective switch by OPEC members from dollars to euros (p. 116).

2. The structural imbalances in the U.S. economy are sustainable as long as:

a. The three international traded Acrude oil markers@ are denominated in U.S.dollars.

b. The U.S. dollar is the world=s monopoly currency for global oil transactions.

c. Nations continue to purchase oil for their energy needs (p. 120).

3. The U.S. is strong enough to dominate the world militarily. Economically, it is in decline, decreasingly competitive and increasingly in debt (p. 157).

4. The momentum of OPEC toward a petro-euro or a basket of currencies for international oil transactions is well under way (p. 220).

References

Unless specified, all page numbers refer to:

Clark, William. 2005. Petro-dollar warfare B oil, Iraq and the future of the dollar. Gabriola Island, B.C., Canada: New Society.

Specified Reference:

Johnson, Chalmers. 2004. The sorrows of empire B militarism, secrecy, and the end of the Republic. New York, N.Y.: Henry Holt/Metropolitan.

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